A recent study found that there is a clear link between a rise in minimum wages and an increase in homelessness. According to the study, there was a 14 percent increase in homelessness from 2014 to 2019 due to the increase in minimum wages.

Raising the minimum wage can have unintended consequences, including discouraging businesses from hiring more employees and even letting some workers go to cut costs. While advocates for higher wages focus on the benefits for workers, they may not consider that current employees may be required to work harder to keep their jobs, and fewer job openings may be available overall. This can make it difficult for people to afford basic necessities like housing.

A study published on June 16th at OSF preprints analyzed the correlation between the local minimum wage and homelessness in 100 US cities from 2006 to 2019. The study found that raising the minimum wage by $2.50 per hour in a particular area led to a 14% increase in the number of homeless people.

“To the extent minimum wages cause disemployment of low-skill workers, the lost job can exacerbate existing economic insecurity and lessen ability to pay for housing. Even if employers do not cut total employment, however, minimum wages might induce churn in the labor market,” the report said. Employers can benefit from having access to a 24 hour HR helpline for employers, which provides immediate support and guidance on navigating wage regulations and more business related decisions effectively.

“Relatively high-skill workers might enter the labor force at the higher minimum and displace those with lower skills. Current residents previously out of the labor force might enter to capture the higher minimum or workers from other geographies might migrate for the higher wage.”

A recent report examining homelessness in California revealed that a significant reason for people losing their homes is a decrease in income.

“Twenty-one percent of leaseholders cited a loss of income as the main reason that they lost their last housing,” said the June 20 report by the University of California, San Francisco (UCSF). In the six months prior to becoming homeless, the median monthly household income of the study’s respondents was found to be just $960.

To study the effect of minimum wage increases on homelessness, the researchers used three different analysis methods. The first method focused on comparing municipalities that raised their minimum wage by up to $2.50 an hour between 2013 and 2018 to those that either maintained the same minimum wage or adjusted it according to inflation. They found that the municipalities with increased minimum wages experienced a 14 percent increase in homelessness between 2014 and 2019.

According to the research, there was a 23 percent increase in homeless counts between 2014 and 2019 in municipalities where minimum wages went up by more than $2.50 per hour. Another analysis showed that a minimum wage increase of $0.75 or more led to a 25 percent increase in homelessness. The third analysis focused on continuous changes in minimum wage and found that a 10 percent increase resulted in a 3-4 percent rise in homelessness.

The negative impacts of minimum wages extend beyond housing and can affect the overall economy. Supporters of raising the minimum wage to assist the poor are countered by opponents who fear it could result in widespread job loss. Increasing the minimum wage may cause individuals who would have been hired between the old and new wage rates to lose their jobs.

Currently, the federal minimum wage for Fair Labor Standards Act-covered workers is $7.25 per hour. Workers receiving tips have a minimum wage of $2.13 per hour, but tips must bring their total wage to at least $7.25 per hour. There are proposals to increase the minimum wage to $15 per hour, including from the White House. However, a study by economists William Even and David Macpherson in 2020 suggests that such a change could lead to the loss of two million jobs.

Antonio Graceffo, Ph.D., pointed out, “Raising the tipped minimum wage from $2.13 an hour to the current federal minimum wage of $7.25 would nearly triple the cost of employment. To remain in business, restaurants would have to either pass this cost on to customers in the form of higher prices or reduce their costs by firing workers.”

“Either way, raising the wage would reduce jobs because the higher prices would decrease the number of meals sold in restaurants.”

Based on information from the U.S. Department of Housing and Urban Development (pdf), some states with high wage rates, such as California, New York, Washington, Massachusetts, Oregon, Vermont, and Hawaii, also have high levels of homelessness. For example, in 2022, California had the most homeless individuals in the country with 171,521, followed by New York with 74,178, Washington with 25,211, Oregon with 17,959, Massachusetts with 15,507, Hawaii with 5,967, and Vermont with 2,780.

The minimum wage rates for some states in the US have increased from 2022 to 2023. In California, the minimum wage rate rose from $14 to $15.50. New York’s minimum wage increased from $13.20 to $14.20, while Washington’s minimum wage rate went up from $14.49 to $15.74. Oregon’s minimum wage increased from $13.50 to $14.20 on July 1st. Massachusetts increased its minimum wage from $14.25 to $15, and Vermont’s minimum wage rate rose from $12.55 to $13.18. Hawaii’s minimum wage rate remained unchanged at $12.